Q1 | Calculating cost of goods sold (Purchases account)
A company uses the three-account method (三分法). Beginning inventory is 80,000 yen and ending inventory is 95,000 yen. Which adjusting entry correctly calculates cost of goods sold in the Purchases account?
Beginning inventory is added to cost of goods sold: Dr Purchases / Cr Merchandise inventory 80,000. Ending inventory is removed and carried forward: Dr Merchandise inventory / Cr Purchases 95,000. The option "Dr Merchandise inventory 80,000, Purchases 95,000 / Cr Purchases 80,000, Merchandise inventory 95,000" reverses debit and credit on both lines. The option that debits Purchases 95,000 and Merchandise inventory 80,000 swaps the beginning and ending amounts. The option with only "Dr Merchandise inventory 95,000 / Cr Purchases 95,000" records only the ending inventory and never moves the beginning inventory into Purchases.
Q2 | Allowance for doubtful accounts (difference method)
At year-end, accounts receivable are 450,000 yen and electronically recorded receivables are 250,000 yen. The company sets an allowance of 2% of these balances using the difference method (差額補充法). The allowance balance before adjustment is 5,000 yen. Which adjusting entry is correct?
Dr Provision for doubtful accounts (貸倒引当金繰入) 14,000 / Cr Allowance for doubtful accounts (貸倒引当金) 14,000
Dr Provision for doubtful accounts (貸倒引当金繰入) 4,000 / Cr Allowance for doubtful accounts (貸倒引当金) 4,000
Dr Allowance for doubtful accounts (貸倒引当金) 9,000 / Cr Reversal of allowance for doubtful accounts (貸倒引当金戻入) 9,000
Dr Provision for doubtful accounts (貸倒引当金繰入) 9,000 / Cr Allowance for doubtful accounts (貸倒引当金) 9,000
AnswerD. Dr Provision for doubtful accounts (貸倒引当金繰入) 9,000 / Cr Allowance for doubtful accounts (貸倒引当金) 9,000
The estimate is (450,000 + 250,000) x 2% = 14,000 yen. The difference from the existing 5,000 yen, 9,000 yen, is added. The option adding 14,000 yen adds the full estimate without subtracting the balance. The option adding 4,000 yen leaves out the electronically recorded receivables (450,000 x 2% - 5,000). The option with a reversal of the allowance records a reversal although the estimate is larger than the balance, which is the wrong direction.
The accounting period is April 1 to March 31. On September 1 of this period, equipment costing 480,000 yen was bought and put into use. Depreciation uses the straight-line method (5-year useful life, zero residual value), the indirect method, and monthly proration. Which adjusting entry is correct?
One year is 480,000 / 5 = 96,000 yen. September to March is 7 months, so 96,000 x 7/12 = 56,000 yen is credited to accumulated depreciation (indirect method). The option with 96,000 yen does not prorate by month. The option that credits Equipment reduces it directly (the direct method), which is not the Grade 3 method. The option with 48,000 yen counts the months as 6.
Q4 | Transfer to supplies on hand
Postage stamps bought during the period are recorded as communication expense, and revenue stamps as taxes and dues. At year-end, unused postage stamps of 3,200 yen and unused revenue stamps of 6,000 yen remain. Which adjusting entry is correct?
Dr Supplies on hand (貯蔵品) 9,200 / Cr Communication expense (通信費) 9,200
Dr Communication expense (通信費) 3,200, Taxes and dues (租税公課) 6,000 / Cr Supplies on hand (貯蔵品) 9,200
Dr Supplies on hand (貯蔵品) 9,200 / Cr Communication expense (通信費) 3,200, Taxes and dues (租税公課) 6,000
Dr Supplies on hand (貯蔵品) 9,200 / Cr Supplies expense (消耗品費) 9,200
AnswerC. Dr Supplies on hand (貯蔵品) 9,200 / Cr Communication expense (通信費) 3,200, Taxes and dues (租税公課) 6,000
Unused items are assets for next period, so they move to Supplies on hand, reducing the expense accounts originally used (postage to communication expense, revenue stamps to taxes and dues). The option that credits Communication expense 9,200 takes the revenue stamps out of communication expense too. The option that credits Supplies on hand reverses debit and credit; that is the shape of the reversing entry at the start of next period. The option that credits Supplies expense uses an account that was never used for these items.
Q5 | Prepaid expense (prepaid insurance)
The accounting period is April 1 to March 31. On August 1 of this period, a one-year fire insurance premium of 36,000 yen was paid and recorded as insurance expense. Which adjusting entry is correct?
The part for next period is April to July, 4 months. 36,000 x 4/12 = 12,000 yen moves from insurance expense to prepaid insurance (an asset). The option with 24,000 yen treats this period's 8 months as prepaid. The option "Dr Insurance expense / Cr Prepaid insurance" reverses debit and credit; that is the reversing entry at the start of next period. The option with 9,000 yen counts next period's months as 3.
Q6 | Unearned revenue (unearned rent)
The accounting period is April 1 to March 31. On December 1 of this period, rent of 180,000 yen for the six months from December 1 to May 31 was received and recorded as rent income. Which adjusting entry is correct?
Dr Rent income (受取家賃) 60,000 / Cr Unearned rent (前受家賃) 60,000
Dr Unearned rent (前受家賃) 60,000 / Cr Rent income (受取家賃) 60,000
Dr Rent income (受取家賃) 120,000 / Cr Unearned rent (前受家賃) 120,000
Dr Accrued rent (未収家賃) 60,000 / Cr Rent income (受取家賃) 60,000
AnswerA. Dr Rent income (受取家賃) 60,000 / Cr Unearned rent (前受家賃) 60,000
The part for next period is April to May, 2 months. The 180,000 yen covers 6 months (30,000 yen a month), so 180,000 x 2/6 = 60,000 yen moves from rent income to unearned rent (a liability). The option "Dr Unearned rent / Cr Rent income" reverses debit and credit; that is the reversing entry at the start of next period. The option with 120,000 yen treats this period's 4 months as unearned. The option that debits Accrued rent treats rent already received as accrued (not yet received), which is the opposite idea.
Consumption tax is recorded with the tax-excluded method (税抜方式), at a 10% rate. Before adjustment, consumption tax paid is 84,000 yen and consumption tax received is 130,000 yen. Which adjusting entry is correct?
Dr Consumption tax paid (仮払消費税) 84,000, Consumption tax payable (未払消費税) 46,000 / Cr Consumption tax received (仮受消費税) 130,000
Dr Consumption tax received (仮受消費税) 130,000 / Cr Consumption tax paid (仮払消費税) 84,000, Consumption tax payable (未払消費税) 46,000
Dr Consumption tax received (仮受消費税) 46,000 / Cr Consumption tax payable (未払消費税) 46,000
Dr Taxes and dues (租税公課) 46,000 / Cr Consumption tax payable (未払消費税) 46,000
AnswerB. Dr Consumption tax received (仮受消費税) 130,000 / Cr Consumption tax paid (仮払消費税) 84,000, Consumption tax payable (未払消費税) 46,000
Both the consumption tax received (credit balance) and the consumption tax paid (debit balance) are closed to zero, and the difference, 130,000 - 84,000 = 46,000 yen, becomes consumption tax payable (a liability). The option that debits consumption tax paid and payable and credits consumption tax received reverses every line. The option "Dr Consumption tax received 46,000 / Cr Consumption tax payable 46,000" moves only the difference, leaving both provisional accounts with balances. The option that debits Taxes and dues treats the tax as an expense, which the tax-excluded method does not do.
Q8 | Recording corporate taxes
At year-end, the total of corporate, inhabitant and enterprise taxes for the period is 320,000 yen. An interim payment of 140,000 yen was made during the period and recorded as interim corporate tax payments (仮払法人税等). Which adjusting entry is correct?
Dr Corporate, inhabitant and enterprise taxes (法人税、住民税及び事業税) 320,000 / Cr Corporate taxes payable (未払法人税等) 320,000
Dr Corporate, inhabitant and enterprise taxes (法人税、住民税及び事業税) 180,000 / Cr Corporate taxes payable (未払法人税等) 180,000
The expense is the full year amount, 320,000 yen. The interim payment is removed from 仮払法人税等, and the remaining 180,000 yen becomes corporate taxes payable (a liability). The option with taxes payable of 320,000 does not subtract the interim payment and leaves 仮払法人税等 in place. The option with an expense of 180,000 records only the remainder as expense, understating this period's expense. The option that credits the tax expense account reverses debit and credit.
Q9 | Amount of cost of goods sold
Find cost of goods sold for the period from the following: beginning inventory 60,000 yen, purchases for the period 820,000 yen, ending inventory 75,000 yen.
805,000 yen
835,000 yen
880,000 yen
745,000 yen
AnswerA. 805,000 yen
Cost of goods sold = beginning 60,000 + purchases 820,000 - ending 75,000 = 805,000 yen. 835,000 subtracts the beginning and adds the ending, the reverse. 880,000 forgets to subtract ending inventory. 745,000 forgets to add beginning inventory.
Q10 | Depreciation (declining-balance method)
Equipment bought in an earlier period was used for the whole of this period (cost 600,000 yen; accumulated depreciation before adjustment 240,000 yen). Depreciation for the period is calculated with the declining-balance method (定率法) at a rate of 40%. What is the amount?
240,000 yen
96,000 yen
144,000 yen
216,000 yen
AnswerC. 144,000 yen
The declining-balance method is (cost - accumulated depreciation at the start of the period) x rate: (600,000 - 240,000) x 40% = 144,000 yen. 240,000 applies the rate to cost without subtracting accumulated depreciation. 96,000 applies the rate to accumulated depreciation. 216,000 multiplies the book value by 60%, that is (1 - rate).
Q11 | Settling cash over and short
During the period, actual cash was 7,000 yen less than the book balance, and the difference was recorded in cash over and short (現金過不足). At year-end, 4,500 yen of it turned out to be an unrecorded communication expense, but the cause of the rest is unknown. For the unknown part, which account and amount are recorded in the adjustment?
Miscellaneous gain (雑益) 2,500 yen
Miscellaneous loss (雑損) 7,000 yen
Miscellaneous gain (雑益) 4,500 yen
Miscellaneous loss (雑損) 2,500 yen
AnswerD. Miscellaneous loss (雑損) 2,500 yen
Cash was short, so cash over and short has a debit balance of 7,000 yen. The 4,500 yen found goes to communication expense, and the remaining 7,000 - 4,500 = 2,500 yen is an unexplained shortage, recorded as miscellaneous loss (an expense). A miscellaneous gain applies only when cash was over. 7,000 does not subtract the explained part. 4,500 is the explained part, not the unknown part.
Q12 | Reversing entries and interest expense
The accounting period is April 1 to March 31. Each November 30 the company pays one year of loan interest (December 1 to November 30), 18,000 yen. At the end of last period it recorded accrued interest of 6,000 yen, and it made a reversing entry at the start of this period. On November 30 of this period it paid the 18,000 yen and recorded it as interest expense. What is the interest expense balance before adjustment?
18,000 yen
12,000 yen
24,000 yen
6,000 yen
AnswerB. 12,000 yen
The reversing entry (Dr Accrued interest 6,000 / Cr Interest expense 6,000) puts 6,000 yen on the credit side of interest expense. The payment on November 30 adds 18,000 yen on the debit side, so the balance is 18,000 - 6,000 = 12,000 yen (8 months, April to November). 18,000 ignores the reversing entry. 24,000 adds the 6,000 instead of subtracting it. 6,000 is just last year's accrual. At year-end, this period's accrual (December to March, 6,000 yen) is added, so interest expense for the period becomes 18,000 yen.
Q13 | Monthly closing and depreciation
The accounting period is April 1 to March 31. The company does monthly closing (月次決算) and has recorded depreciation on its building of 15,000 yen at the end of each month for the 11 months from April to February (indirect method). The confirmed annual depreciation for the period is 180,000 yen. How much depreciation is recorded at year-end (March)?
15,000 yen
180,000 yen
165,000 yen
0 yen
AnswerA. 15,000 yen
Already recorded: 15,000 x 11 = 165,000 yen. The difference from the annual 180,000 yen, 180,000 - 165,000 = 15,000 yen, is recorded at year-end. 180,000 ignores what was already recorded and double-counts it. 165,000 is the amount already recorded. 0 leaves March unrecorded.
Q14 | Transferring a bank overdraft
The company has an overdraft agreement on its checking account and records everything in the checking account during the period. Before adjustment, the checking account has a credit balance of 35,000 yen. Which describes the year-end treatment and balance sheet presentation correctly?
No transfer; show the checking account as minus 35,000 yen under assets
Transfer with Dr Bank overdraft (当座借越) 35,000 / Cr Checking account (当座預金) 35,000 and show it under assets
Transfer with Dr Checking account (当座預金) 35,000 / Cr Bank overdraft (当座借越) 35,000 and show it under liabilities
Transfer with Dr Bank overdraft (当座借越) 35,000 / Cr Checking account (当座預金) 35,000 and show it under liabilities
AnswerC. Transfer with Dr Checking account (当座預金) 35,000 / Cr Bank overdraft (当座借越) 35,000 and show it under liabilities
A credit balance in the checking account is effectively a bank loan, so the checking account is debited to bring it to zero and the amount is moved to bank overdraft, a liability. It is shown as a liability, not as a negative asset. The option that transfers with "Dr Bank overdraft / Cr Checking account" and shows it under assets has the entry reversed and shows it as an asset. The option with the same entry shown under liabilities shows a liability but reverses the entry, which would make the credit balance even larger. At the start of next period, the reversing entry is Dr Bank overdraft / Cr Checking account.
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